- Industrial Packaging (NA Corrugated
Packaging & Containerboard export): Q1 US box shipments increased by 3% y/y (March:
+4.7%). They saw strong export containerboard demand in Q1 and expect this to
continue in Q2 across all regions; however, expect demand in Mid-East &
Africa to moderate somewhat as citrus season tapers. Due to significant
dislocations in supply chains, they expect recovered paper costs to be a massive
headwind in Q2. E-commerce exploded, with growth well in excess of the usual
solid double-digit growth.
- Going
into 2020, global containerboard inventories have been much tighter and seen
strong pull from banana and citrus: Their US Bogalusa mill (840ktpa) had one PM down on 3
March, but fully operational in April. Their Rome mill remains down (since 14
March) with both PMs stopping production (880kpta). They are aiming to restart
in June but expect to lose 25% (220kt) of production this year.
- Concerns
over OCC as recovery supply remains dependent on retail (biggest) and
restaurants: 30% of US OCC
is sourced from imported boxes. IP is expecting an USD 55m (7% of Q1 EBITDA)
impact from recovered paper in Q2. Recovered paper shortages to support demand
for pulp in the ST.
- UWF
ST outlook is dire due to the impact of work-from-home and the decline in print
advertising: They are
expecting drops of 40% in North America and Latin America, 30% in Europe and
50% in Russia. In their view, it is too early to tell if the decline is
structural or if it will rebound. UWF comprises 17% of their business and their
UWF strategy remains unchanged, convert if possible, otherwise close capacity
to meet the reality of the structural decline.
- Ilim
JV (Russia) saw record production in March, with limited impact from COVID: Volumes stable (flat), with lower pricing
offset by improved operations and lower input costs. 60-70% of revenue are USD
based, with most costs Rouble based. Business is planning pull back in CapEx,
but unlikely to see any significant delays in their USD 1bn kraftliner
expansion project.
- Liquidity strong (USD 3.8bn) and healthy
maturity profile: No changes made to capital allocation. They
continue to target net debt/EBITDA of 2.5-2.8x. CapEx was pulled back by 30% to
USD 0.6bn for FY 20e. Q1 dividend paid; however, share repurchase program was
suspended.
- FY guidance withdrawn: Industrial
packaging demand is expected to moderate in the ST (US box demand was 2% in
April), with pricing weaker (but higher for exports) and cost pressure from
recovered fibre. Printing Papers to be adversely impacted by large drop off in
demand due to COVID, leading to higher absorption of fixed costs. Pricing and
costs are expected to remain stable.
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